In these tough times, tenants are increasingly contemplating downscaling their businesses and looking for ways to reduce costs. Utilising a break clause may seem an easy option, but tenants should not be under the misconception that breaking their lease will be straightforward. Break clauses are usually conditional and are always construed strictly in accordance with their terms. A failure to meet any of the conditions could result in the break being ineffective. Good planning and good advice are crucial for a clean break.
The majority of break clauses in commercial leases will require serving written notice on the landlord perhaps six or nine months in advance of the break date. The notice provisions in the lease must be followed meticulously, as any error could result in the break being ineffective. Notice should be served within the specifi ed timescale, in the correct form, by the correct method of service to the correct address. As Lord Hoffman advised in the case of Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd in 1997, “If the clause had said that the notice has to be served on blue paper, it would be no good serving it on pink paper, however clear it may have been that the tenant wanted to terminate the lease”.
Many break clauses will require the rent to be fully paid and up to date at the break date in order for the break to be successfully exercised. Some clauses may go even further and also require that for a break notice to be validly served, the rent at the date of service must be up to date. Some clauses will refer to ‘rents’, but what exactly does the term ‘rents’ include? Usually this will include rent, service charge and insurance rent, but could include all other sums payable under the lease, depending on the defi nition of ‘rents’. Tenants should contact their landlord a few weeks prior to the break date asking for confi rmation of the sums due and confi rmation that there are no arrears. If any sums are disputed, for example service charge, it is advisable to make the payment on a ‘without prejudice’ basis, and argue about the sums later after the break has been exercised.
Vacant possession is another common condition. This means giving the premises back to the landlord in accordance with the yielding up provisions in the lease. On the break date, the landlord will expect the premises to be handed back free from subtenancies, with all the tenant’s fi xtures, fi ttings and chattels removed (including any waste and rubbish) and any alterations reinstated.
Compliance with covenants
Often break clauses will require some form of compliance with tenant covenants, either at the break date or on service of the break notice. Tenants should take great care and prioritise the meeting of this condition carefully – good planning is essential. It is not an option to simply leave the premises in disrepair and pay damages after the break, as is the case with dilapidations. A prudent tenant should consult the landlord with a view to agreeing a schedule of works or indeed instruct a surveyor/solicitor to provide some advice as to what is required and agree a suitable strategy.
Top tip for a clean break
Decide well in advance whether you wish to exercise your break and get advice on what is required to do so effectively.